Cash in on invention

IT directors could be in danger of unwittingly breaking patents if a draft EU directive is enacted. But they could also steal a march on the big suppliers by patenting their own software innovations.

The European Commission is keen to clarify the position on how to treat software under patent law, but the passage of its draft directive on the patentability of computer-implemented inventions, better known as the software patents directive, is proving stormy.

The latest chapter in the saga, as reported in Computer Weekly 20 July, is that a number of member states are now claiming that they voted for it "by mistake" and want a second bite at the cherry. However, assuming that the main points of the draft make it through to the directive to be enacted in member states' national law, there are many important issues to exercise not only UK software suppliers but IT directors too.

The aim of the draft directive may be to clarify the patent position for the benefit of all, but many experts believe that an EU directive making it easier to acquire a patent for a software invention would see the software giants flexing their muscles in court and IT departments having to exercise new vigilance.

"If your competitive edge is driven by bespoke systems, you will have to patent a reasonable amount of it to ensure the licensing police don't come after you," warns Stephen Way, director of Common UK, a branch of the IBM Computer Users' Association. "My fear is that someone might write a piece of code for a basic function, such as screen handling, and be able to patent it.

"The draft directive in its current form has implications for anyone writing code or developing in-house. The only people who will benefit are those with large numbers of patents, which will enable them to close smaller software developers out of the market," he says.

Trevor Cook, legal adviser to the British Computer Society and partner with law firm Bird & Bird, also believes the draft directive has ramifications for IT departments. "If you have a really new, neat idea, then it is worth patenting." he says.

This is because copyright is relatively narrow in its application and stops direct copying and small modifications, he points out. "There won't be many eureka moments, but talk through any ideas with a patent lawyer."

Some industries already patent IT-related products, such as the banking sector with financial instruments. IT directors will find it worthwhile to assess what is happening in their industry sectors by doing a few searches on the patent database run by the Patent Office, recommends Cook. And the effort and expense of acquiring legal rights to software inventions mean you would have to take steps to protect the investment. This would include identifying people who would want to purchase a licence and those who are infringing the patent.

Certainly it will help if the rules are more clearly drawn. "The current lack of harmonisation means the picture is unclear and more prone to abuse," says Kit Burden, partner with Barlow Lyde & Gilbert. The result is that when US companies file for a patent in European territories: a patent is granted to a software product "more frequently than we would like", he says.

Without a clear European framework, national patent offices and the courts across Europe offer subtly different views of when software constitutes genuine invention, ranging from anything goes in some countries to extreme stringency in the UK.

This diversity of opinion undermines the European Patent Office, set up in 1979 to grant patents that have legal status in all member states. Patents are territorial so ideally companies would avoid the cost of application to individual countries and acquire protection across the EU in one go swoop through the European Patent Office. The European directive is intended to bring clarity and to make it easier and cheaper for companies to acquire exclusive commercial rights to their work.

The EU may be stuck on interpretation of when software creates an original technical effect but there is broad consensus that software that merely automates existing processes or business methods should be excluded. In the US, by contrast, there is often scant concern for when software introduces a genuine invention. "So long as [software] is new and useful, anyone under the sun can file," says John Collins, partner at patent and trademark attorneys Marks & Clerk.

Applications of patent-hungry US companies are eased by the Patent Co-operation Treaty, which allows them to file to extend their patent to Europe. Although an application made this way still has to be scrutinised by a panel of European examiners, different interpretations of patent law is compounded by sheer volume of applications. The result is that erroneous ones slip through the net.

"In theory, the European Patent Office does not have the same approach [towards software] as the US, but it does not have sufficient resources to carry out due diligence," says Burden. If there was one view of what is patentable in Europe, that scenario would be diminished. And if someone gets a patent in the US, "they are more likely to get funding from venture capitalists and to be able to fund patents in Europe," he points out.

While the Patent Co-operation Treaty gives equal rights to European companies to apply for patents across the Atlantic, US companies have the advantage because of the more lenient interpretation of patents when applied to software, enshrined in US legislation and practice. Arguably, UK businesses have suffered most from the influx of US patents though the European Patent Office because the UK takes the most stringent approach.

A harmonised directive from the EU may ease procurement of a Europe-wide patent that is applied consistently throughout the region. But it should not raise hopes of comprehensive protection. "A patent is just a licence to litigate," according to John Mitchell, managing director of UK speech recognition company Allvoice, who has himself been involved in litigation. "The reality is that you have a patent until someone proves you haven't."

Many cases brought to court for infringement win or lose on whether a contestant can prove the patent was new or inventive at the time of being granted. In the UK, disclosure of an idea, whether in a journal or textbook, or even a private conversation not safeguarded by a confidentiality agreement, means it cannot be patented.

The US takes a more flexible approach to publication of ideas in order to allow inventors to market test their ideas before incurring the expense of procuring a patent. It applies a 12-month grace period, during which a patent can be applied for if the idea proves to be commercially worthwhile. However, this does not alter the case that a determined company with financial muscle can still choose to try and break a patent.

Vociferous critics of patents, such as the Free Software Foundation, say that with patents small companies are at a disadvantage and that patents discourage innovation, as software developers cannot be expected to be aware of them. Certainly, the difficulty of vouching for the validity of a patent is something no one disputes, including the UK Patent Office. "Although our patent office does an extremely robust search, it cannot know about every piece of evidence, everywhere. We grant a patent in good faith," says Jeremy Philpott of the Patent Office.

Given the high cost of purchasing patents and the risk that a powerful competitor may wield financial clout to disprove it through a long and complicated court case, many smaller companies are advised by the UK Patent Office to steer clear of them. When an application is for very small improvement, the product may not yield a return on the time and expense needed to secure a patent.

"Unless an invention has the wow factor of the Sikorsky helicopter, companies may be better off exploiting their first-mover advantage and getting a registered trademark to reap commercial benefit," says Philpott. Any minor invention will probably have been rendered obsolete during the three-year timeframe for a patent to be granted, he points out.

Mitchell is aggrieved that a patent is not binding. "It takes three years for a patent to come through and you have to pay money for it. You would be excused for thinking you had paid for a service. But if anyone challenges it, the UK Patent Office says 'you are responsible'."

A proposal in the Patent Bill, currently before parliament proposes a non-binding opinion by the Patent Office to help resolve disputes. But Mitchell says, "I have already paid for an opinion. It is called a patent."

Philpott says, "We always counsel against litigating. It is easy to get very indignant if you see someone else exploiting your idea. But it is better to stop and negotiate an agreement."

His office recommends methods including mediation, such as alternative dispute resolution, and also plain, common, business sense. "Money could be better spent investing in an advertising campaign to gain more market share, than on litigation," he says.

Given the difficulty of verifying the patent and enforcing it, the uninitiated would be forgiven for wondering whether patents have a place in the market place. This is especially true of software technology, which moves at a much faster speed than the bureaucratic machine that grants patents. The dilemma, according to Mitchell, is that "one patent system does not suit all technologies. But you also need to have a system that rewards R&D and innovation."

For Robert Harrison, patent attorney with intellectual property consultancy Rouse and member of the legal advisory group for Federation against Software Theft, having the choice is important. "If your invention is important, you should have the opportunity to patent," he says.

There are ways of minimising the risk of costly litigation, he says, by opting for suing on a contingency basis, where you only pay your lawyers if you win. Similarly, there are companies that finance patent infringement suits in return for a slice of the proceeds. In the UK, Mitchell chairs the Patent Enforcement Project, set up to provide a fighting fund for companies working to protect their patents.

While the discussion about the definition of patents continues, the lack of enforcement of patents is keeping the lawyers rich. Mitchell says, "The more [politicians] fiddle around the edges, the more they ignore the main problem and that is of enforcing patents."

Copyright and patents explained

Software has two forms of protection: copyright and patent. Copyright covers intellectual property such as musical or literary works and also source code. Copyright exists as soon as you write an opera or a computer program but is a limited right because it requires you to prove that someone saw your work and copied it. It also allows someone to reach the same conclusion or thesis if they reached it independently and without help. A patent has to be acquired and is potentially a much more valuable right because it provides a monopoly over a product. The patent system was designed in the 18th century as way of encouraging innovation. In return for putting information into the public domain, inventors were guaranteed a return on their investment by obtaining exclusive rights for a period of 20 years. Applicants list their claims in a register and this defines what other people are not allowed to do in the country where the patent is registered. If someone comes up with an identical product through independent research for which a patent already exists, they cannot trade in that country.

UK patent law puts software in the dock

The UK takes the most stringent view on software patents in Europe and specifies that "computer programs, as such" cannot be patented. The courts here have also taken the strictest line in enforcement including ruling that "anything that can be done mentally is a mental act, even if done on a computer". This phrase "computer programs, as such" has created a real mess according to one patent lawyer and has led to a false, yet widespread, belief that software cannot be patented. The UK Patent Office agrees that the wording is confusing. "That exclusion is not well understood. In the final clause there is a double negative 'but only', which reverses the meaning," explains Jeremy Philpott of the Patent Office. Thus, a computer program in itself does not constitute an invention, but only when it is applied to create a new utility or function. However, the clumsy wording has discouraged many UK companies from applying for patents. The UK Patent Office confirms that a larger number of US firms are applying for patents in the UK than home-grown companies. "Throughout the 1980s and 1990s, too many British companies have looked at the exclusions [regarding software] and walked away without reading the double negative," says Philpott.

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